Sara Wicks
Strategic Philanthropy in the OBBBA Era
The OBBBA Challenge: New laws impose a 0.5% AGI floor on deductions and cap tax benefits at the 35% bracket, even for top earners.
The “Bunching” Strategy: Offset these limits by consolidating multiple years of giving into a single Donor-Advised Fund (DAF) contribution during high-income years.
DAFs vs. Foundations: DAFs offer superior privacy (no public 990-PF), lower costs, and no mandatory 5% annual payout.
Legacy & Liquidity: Use DAFs as “financial shock absorbers” for business sales and as a tool to involve the next generation in stewardship.
2026 Outlook: With estate tax exemptions rising to $15 million, DAFs remain a cornerstone of long-term wealth transfer.
While donor-advised funds (DAFs) have been part of the American philanthropic landscape since the 1930s, they have recently experienced a massive surge in popularity. This resurgence was originally sparked by the Tax Cuts and Jobs Act of 2018, but new legislative shifts under the One Big Beautiful Bill Act (OBBBA) have made DAFs an even more critical tool for high-net-worth (HNW) individuals navigating a complex tax environment.
A DAF is a private account administered by a third party—typically a public charity or the charitable arm of a financial institution. Think of it as a charitable savings account. You contribute assets, receive an immediate tax deduction, and “advise” the fund on how to distribute grants to 501(c)(3) organizations over time. Because the DAF is tax-exempt, assets can be invested and grow tax-free.
Recent tax law changes under the OBBBA have introduced specific hurdles for HNW donors that make DAFs particularly attractive as a defensive tax strategy:
To mitigate the new limitations, many savvy taxpayers are front-loading their charitable contributions. By “bunching” several years’ worth of planned giving into a single DAF contribution before year-end, donors can maximize their deduction in a single year to surpass the AGI floor and offset higher-income spikes.
For example, a donor in the 37% bracket with an AGI of $1 million faces a $5,000 floor. By contributing $100,000 to a DAF, they secure a $33,250 tax benefit ($95,000 x 35%) while bypassing the higher floor they might hit if they spread smaller donations over several years.
While foundations were once the gold standard, DAFs offer distinct advantages:
Beyond simple tax savings, DAFs solve complex financial puzzles:
Offsetting “Windfall” Years: A large DAF contribution acts as a “shock absorber” during a business sale, decreasing taxable income when it is highest.
Legacy and Family Involvement: Naming children as successor advisors involves them in prioritizing community needs, teaching the next generation about stewardship.
Sustaining Support: Donors can contribute once during a high-liquidity event and set up automated grant schedules to ensure consistent support for non-profits regardless of future cash flow.
Bridging the “Tech Gap”: Small charities often cannot accept complex gifts like stock. The donor gets the tax benefit of the security, while the DAF sponsor handles the liquidation.
Estate Tax Considerations: 2026 and Beyond
The OBBBA expanded some existing deductions and made several temporary provisions permanent. High-net-worth individuals should note that gift and estate-tax exemptions will rise from $13.99 million per individual in 2025 to $15 million ($30 million for married couples) for 2026. Starting in 2027, these will be adjusted annually for inflation. While the top federal rate remains at 40%, the expanded exemption provides a significant window for strategic wealth transfer.
A donor-advised fund is more than a tax tool. It is a way to align financial success with personal values. By utilizing a DAF, you can navigate the new OBBBA floors and ceilings while ensuring your philanthropic legacy remains intact.
Do you have questions about optimizing your philanthropic impact under the new OBBBA guidelines? Whether you are looking to navigate the new 0.5% AGI floor or want to leverage the expanded $40,000 SALT deduction, our team can help you design a giving strategy that aligns with your financial goals.
Contact Us today to explore how a Donor-Advised Fund can serve as a cornerstone of your wealth management plan.
Disclosures:
– This is not a solicitation, or an offer to buy or sell any security or investment product, nor does it consider individual investment objectives or financial situations.
– Information in this material is not intended to constitute legal, tax or investment advice. You should consult your legal, tax and financial advisors before making any financial decisions.
– IRS Circular 230 Disclosure: Pursuant to IRS Regulations, neither the information, nor any advice contained in this communication (including any attachments) is intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.